NSO Calculator
Exercise spread as ordinary income, full withholding breakdown, and net cash from a cashless exercise-and-sell.
Your NSO Calculator Result
Generated from the inputs below — a record you can revisit, or share with anyone helping you plan.
Your detailsInput Parameters
Exercise
The fixed price your option lets you pay per share.
Current 409A valuation (private) or market price (public) per share.
Your Income
Bonuses, RSU vests, or prior option exercises this year — counts toward the $1M supplemental threshold, the Social Security wage base and the Additional Medicare threshold.
After Exercise
Selling all shares the same day means no out-of-pocket cash — the sale proceeds cover the strike price and taxes.
1,000 shares × ($30 FMV − $10 strike). Taxed as W-2 compensation the moment you exercise, regardless of whether you sell.
Sale proceeds at the exercise-date FMV, minus the strike price you paid and all withholding. A true cashless exercise nets you this amount without any out-of-pocket cash.
1,000 shares × $10 strike price — this is separate from the tax owed on the spread.
Flat 22% optional rate on the spread — often lower than your actual marginal rate on large exercises, which can leave a gap due at filing.
$34,500 of the $184,500 wage base remained before this exercise.
No wage cap.
29.6% effective rate on the spread. This is withholding, not necessarily your final tax bill.
Analysis
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Open calculatorNSO Exercise: The Spread Is Taxed Immediately, Whether You Sell or Not
Exercising a Non-Qualified Stock Option (NSO) creates ordinary W-2 income immediately, equal to the exercise spread — the fair market value at exercise minus your strike price — multiplied by the number of shares. This is taxed the moment you exercise, regardless of whether you sell the shares that day or hold them. That's the single most important thing to understand before exercising: the tax bill doesn't wait for a sale.
NSOs are taxed differently from Incentive Stock Options (ISOs) — the spread on an ISO exercise is generally an Alternative Minimum Tax (AMT) preference item, not immediate ordinary income and not subject to payroll withholding. This calculator is for NSOs specifically; if your option grant letter says "Incentive Stock Option," the mechanics below don't apply to you.
How the Exercise Spread Is Withheld
Using this calculator's own defaults — exercising 1,000 shares at a $10 strike price with a $30 fair market value, $150,000 in year-to-date regular wages, single filer:
Cash to Exercise = 1,000 × $10 = $10,000 (separate from the tax owed)
On that $20,000 spread: $4,400 federal withholding (22% supplemental rate), $1,240 Social Security (6.2%), $290 Medicare (1.45%) — $5,930 total, a 29.65% effective withholding rate. Note this is the same 29.65% rate structure as the RSU calculator, because it's the same federal supplemental-wage withholding mechanism applied to a different income base (the spread, rather than the full share value).
The 22% withholding is frequently not enough. If exercising pushes your total income for the year well above where 22% sits in the federal bracket structure, you can owe a meaningful amount more at filing — this is one of the most common surprises in equity compensation. Model your actual bracket with the Income Tax Calculator before exercising a large NSO grant.
If you hold shares after exercising rather than a cashless exercise-and-sell, your cost basis becomes the fair market value at exercise (strike paid plus the spread already taxed) — any further gain or loss from that point is a separate capital gain/loss, long-term if held over a year from exercise.